The drawn-out acquisition of Versatel has been proved to be an extremely painful process for Tele2. It proposed to pay 2.20 euros ($2.65) per ordinary Versatel share in an offer worth 1.34bn euros ($1.61bn) last July but by early September 2005 a group of a group of Versatel investors had moved to block the deal saying the offer of 2.20 euros ($2.65) was too low.

The group called itself TeleNee (literally translated as TeleNo) and it claimed to represent over 600 private investors. It sought to block Tele2 from reaching its target of 95% ownership of Versatel, despite the deal being backed by Versatel’s board of directors and its then main shareholder.

At one stage, Tele2 grew so frustrated at the successful delaying campaign of TeleNee that the Swedish telecoms company threatened to pull of out of the deal if a Dutch court reviewing the bid ruled against it. The rebel shareholders had filed a complaint and had asked for a judicial investigation into Tele2’s bid for Versatel shares.

In December, the Enterprise Chamber of the Amsterdam Court of Appeals confirmed Tele2’s worst fears and upheld the shareholders’ injunction, and ordered the appointment of three additional independent members to Versatel’s supervisory board to represent the interests of the objecting shareholders. Tele2 persevered however and in early March both companies said in a joint note that the merger proposal was filed with the Dutch commercial register.

Things were looking so rosy that Versatel was scheduled to convene an EGM to approve the merger on April 3. However, Tele2’s hopes were soon dashed when the Enterprise Chamber of the Amsterdam Court of Appeal ruled that the legal merger between Tele2 and Versatel could not be put to a shareholder vote, despite Tele2 having a majority shareholding in the Dutch alternative carrier.

Now Tele2 is looking at possible alternatives, including for Versatel to acquire Tele2’s Dutch and Belgian activities. Tele2 currently owns 82.4% of Versatel, which is already fully consolidated in its accounts.

Versatel will continue to be bourse-listed until we decide what we are going to do, a Tele2 spokesperson told AFX News. It seems that if the deal had gone ahead, Versatel would have been delisted. Tele2 said it will make its intentions clear by September 1 at the latest.

Amsterdam-based Versatel was founded in October 1995 as a competitor to the then-state company Royal KPN NV, which is still the largest telecoms carrier in the Netherlands. Versatel is currently the second largest alternative carrier in the Dutch market, after Tele2 NL, and it primarily focuses on the Dutch, Belgian, and German markets. The carrier has approximately 1 million customers and 1,800 employees.

Versatel narrowly avoided bankruptcy in 2001 by striking a deal with creditors to swap debt for new shares, but those days now seem well behind it. For the year ending December 31, Versatel recorded net income up at 198.7m euros ($236m) from a net loss of 23.4m euros ($27.8m) in 2004. Sales grew 13.4% to 681.3m euros ($811m) from 600.7m euros ($715m) in 2004.

For Tele2, the deal with Versatel had been the continuation of its strategy of backward integration into infrastructure in markets where it has a critical mass of customers. It believes that owning local access infrastructure is increasingly important in the growing ADSL market to ensure higher margins on access, better control of customers, and the ability to deliver higher margin services.

Over the years Versatel has focused on the large corporate and carrier segments, although it has recently concentrated more on the residential market. On the residential side, it will continue the push in broadband, and in the Netherlands in particular will continue to roll out ADSL2+ and further build its triple-play offering.